Attorneys general from 49 states plus the District of Columbia have signed an agreement with State Farm Insurance that will result in the company's agreeing to compensate consumers who unwittingly bought damaged or salvaged cars.

After titling research is complete, an estimated 30,000 consumers nationwide may be eligible for payments ranging from $400 to more than $10,000, said Tom Miller, Iowa's attorney general, who led the eight-state executive committee of attorneys general who negotiated the settlement. Precise figures will depend on the current average value of each vehicle and the number of consumers who participate in the compensation program. It is estimated that most payments will range from $800 to $1,850.

In all, the settlement will cost State Farm approximately $40 million. State Farm also will pay the expenses for identifying the vehicles, tracing the current owners, contacting owners, taking claims, and making compensation payments.

The agreement resulted after State Farm approached the states and indicated that, after an internal review, it was unable to confirm that it had properly titled all vehicles that it had taken ownership of from policyholders due to damage or theft. In most states, depending on factors such as vehicle age and extent of damage, insurance companies taking ownership in such situations must obtain branded titles, signifying that the vehicles are “salvage,” “damaged,” or some similar designation. According to State Farm, its records showed that it had properly titled approximately 2.4 million vehicles in recent years that may have required a branded title, but that it could not confirm whether a much smaller number may not have been properly titled. Payment will go to the current owners of vehicles that may require branded titles.

“This is a ground-breaking settlement,” said Miller. “It is rare that a company comes to us, discloses a problem, and presents a very viable solution to correct the problem and help consumers. We hope that this agreement will encourage other companies to step forward when necessary, take responsibility, improve practices, and make things right for consumers.”

Consumers who complete claim forms and are approved will receive compensation payments from State Farm later this year or in early 2006. Under the agreement, State Farm will work with state departments of motor vehicles to determine the specific vehicles which require a branded title. The owners of those vehicles will receive letters from the consumer's home state attorney general with a claim form to complete and return to an independent claim administrator company already approved by the states to administer the notification and compensation program. After all claims are in, the amount that each consumer will receive will be finalized and the checks mailed.

Special Reports /

State Farm Agrees to $40 Million Settlement

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